PayPal enters the credit battle in France

Credit made in PayPal arrives in France. Not just any credit, but a professional credit, intended for VSEs / SMEs, users of the PayPal online payment service, and above all granted on the basis of the future income made online by the borrowers. “Our goal is to help VSEs and SMEs to finance their growth, everywhere in the country, even in the” banking deserts “where the traditional credit offer is becoming increasingly difficult to reach”, summarizes Francis Barel, director of PayPal France.

The amount of the loan can reach 160,000 euros, with the promise of an almost real-time response and the release of the funds in a few minutes. Being already a Paypal customer, the borrower benefits from an ultra-simplified subscription process, with no additional documentation.

This PayPal option is not new. It has existed in the United States since 2013, a service gradually extended to the United Kingdom (2015), Germany and Australia (2018). France is therefore the fifth launch country, on a par with the Netherlands. Since 2013, PayPal has already granted more than 1.1 million credits for an amount of 22 billion dollars.

Natural extension of the model

Even credit is not a surprise: it presents itself as a natural extension of the PayPal model that capitalizes the mass of data it owns and knows, like any good fintech (PayPal is often presented as “the” first fintech), making the most of their technology. It is with this spirit, moreover, that PayPal also offers split payment solutions, with a commercial offer considered aggressive by competitors.

Credit is therefore perceived above all as a service for its e-commerce customers, even if the credit margins are much higher than those obtained in payment. “Our core business is and will remain payment. It is our DNA. Credit to SMEs, such as split payments, or even savings offers, are additional services aimed at facilitating the financial inclusion of our users, whether they are private individuals or professionals. »Explains Francis Barel. In 2021, the split payment therefore represents less than 1% of the transaction volume processed by PayPal.

However, PayPal always ventures a little further into the historical territory of banks – credit – based on its ability to analyze customer data and also its reputation with online merchants and consumers. PayPal is a strong brand that inspires trust. Other payment giants, such as Sweden’s Adyen, also offer credit solutions for e-merchants using a similar approach.

A new generation of credit

The principle developed by PayPal, under the term “working capital”, in fact, it takes up the idea started in 2010 by fintech Kabbage to offer a cash advance for online merchants based on a score based on the history of sales and on all the information available on the platform and on the web, including customer reviews on social media . The algorithms did the rest.

Since then this approach has been adopted and refined by payment players, but also by a new generation of fintechs that offer financing to online startups based on an “update” of their data. This technique is developing in the United States, but also in France, with the generic term of “Revenue-based financing (RBF).

“What makes the big difference compared to a traditional loan is the possibility of offering a solution tailored to the needs of the company, and this, at a fixed cost known in advance, without hidden costs. It will therefore be the company to set their reimbursement rate, in particular, between 10% and 30% of their turnover. In other words, companies reimburse when they are paid “explains Francis Barel.

“We are at the dawn of a third generation in corporate financing, after traditional bank loans and, since the 1980s, asset-based financing, such as leasing or factoring. Data-driven financing is emerging today, which is more representative of the company’s performance. We no longer look at the company’s past but at its future “anticipates Nima Karimi, co-founder of the French startup Silvr.

Beautiful fintech flower

The latter brought together last February a financing round of 130 million euros (of which 112 million in debt), one of the largest transactions in Europe, which brought on board the flagship of French fintech (the founders of Qonto, Alma, Libeo or Luko. ..). Bpifrance is also one of the investors, a sign of the interest that the traditional sector has in RBF. Furthermore, Société Générale is testing a similar financing solution for mobile applications.

Silvr is aimed at all digital business models (e-commerce, SaaS software, subscription models …), in short, to all activities that generate a lot of data, through their platforms or all the analysis tools made available by web player (Google analysis, etc.).

“A company that does online customer acquisition naturally produces a lot of data, through a lot of software. These data, crossed with those of open banking, allow us to build a complete history and project future growth “, sums up Nima Karimi. Everything therefore depends on the efficiency of the algorithm that will process this data.

Today, a new wave of funding platforms is rolling out into the RBF niche. Thus they finance the acquisition and marketing campaigns, the stocks, the salesmen’s commissions, all these expenses that promise future collections, but no cash in the immediate future to reassure his banker.

A wave of enthusiasm for the RBF

It is also a real enthusiasm for this type of financing that we are seeing. Last month, in Germany, a comparable fintech, Mubadala Capital, raised € 115 million and Spain’s Ritmo nearly $ 200 million (mostly in debt). According to data from Dealroom, in 2021 nearly $ 2 billion was raised from around thirty RBF startups around the world. And some are starting to make a name for themselves, such as Silvr and Karmen in France, Ritmo in Spain or Vitt in the UK, to speak only of Europe.

The principle of remuneration is always the same: a refund based on a percentage of the turnover, a fixed commission or a variable interest depending on the income (higher as the turnover increases …). A system that can thus bring the rate to high levels … up to 20%!

But it is the nature of credit, adapted to the needs of digital companies, and the rapid response with a fluid path that wins people over. And this alternative method of financing could well benefit from the rise in interest rates and the tightening of the current context, with more stringent credit conditions and less generous collections.